Members of the Securities Industry and Financial Markets Association’s Economic Advisory Roundtable expect the current U.S. recession to continue into mid-2009, with subdued growth thereafter through the end of the year. The current U.S. recession dominated all responses in the current economic survey. The perfect storm of financial market meltdown, credit market freeze and economic contraction are meeting head-on in a period of political transition and regulatory overhaul. Speculation over what the new administration and Congress will do in January 2009 is front and center, making attempts to forecast more challenging than at any time in recent memory. Housing sector weakness, frozen credit markets, falling commodity prices, aggressive central bank actions to support market liquidity, and the effect of an anticipated fiscal stimulus provide the backdrop for the economic outlook.

MONETARY POLICY The Roundtable was unanimous in its opinion that the Federal Open Market Committee (FOMC) would cut the target federal funds rate, currently at 1.00 percent, at the upcoming December 15-16 meeting. The overwhelming majority expect a rate cut of 50 basis points, with the balance anticipating a 25 basis point cut.

THE ECONOMY The median forecast is for gross domestic product (GDP) to fall at an annualized rate of 4.2 percent in fourth quarter 2008, resulting in full-year 2008 growth of 1.3 percent (year-over-year basis).3 The economy is expected to continue to contract on a quarterly basis through mid-2009, with full-year 2009 GDP expected to fall 1 .0 percent.4 This
translates approximately to an 1 8-month recession beginning January 2008, somewhat longer than the 16 month duration of the two longest postwar recessions. December 2007 was recently designated as the peak month of the previous economic expansion.5

INTEREST RATES As noted, the Roundtable’s unanimous view was that the Federal Reserve will lower the target federal funds rate at the upcoming December 15-16 meeting. The weak economy and “flight to quality” were cited as the two most important drivers of falling rates, while inflation, inflationary expectations, Fed policy and foreign investor demand were also identified as important influences.

Other Questions

• Monetary Policy Easing Expected to Continue; Quantitative Easing Next?
• Fiscal Policy to Jump Start Economy; Most Favor Tax Cuts and Infrastructure Spending
• Impaired Credit Markets, Employment, Housing Dominant Risk to U.S. Economic Growth
• Auto Industry
• Oil Prices
• Government Program Impact: Generally Effective
• TARP: Still Waiting

About the Report

A semi-annual survey of SIFMA’s Economic Advisory Roundtable concerning the U.S. economic outlook and rates forecasts.

Credits

SIFMA

• Staff Advisor: Kyle Brandon

SIFMA Economic Advisory Roundtable 2008

• Chair: David H. Resler, Nomura Securities International, Inc
• Vice-Chair: Jim Glassman, J.P. Morgan Chase & Co.